State starts steel drive with scrap metal controls

December 7 2012 at 08:00am

The Government got its knickers in a knot yesterday over its intentions to regulate the iron ore and steel sectors. Apparently “a glitch” occurred and a Government Communication and Information System statement said that an intra-departmental task team on iron ore and steel had recommended the introduction of export taxes on iron ore and steel “where appropriate”.

Apparently this wasn’t true at all. Instead, Sidwell Madupi, the Department of Trade and Industry spokesman, explained that proposals under the terms of the International Trade Administration Act to considerably strengthen the existing conditions and export control measures for scrap metal were being put in place.

“These measures will serve to prevent the export of stolen metal through strengthened inspections and processes under the Second Hand Goods Act and help to safeguard the supply of affordable scrap metal to domestic mini-mills,” he said.

He explained that high international prices had driven a massive unimpeded expansion of domestic scrap metal exports, “driving up prices to… mills which are under threat”.

The government also intended to amend the Competition Act “to take into account and ensure that iron ore price concessions accruing to the primary steel industry are, indeed, passed on to downstream steel users”. This would require appropriate powers to determine pricing methodologies.

Import parity pricing also needed to go, to ensure there was a “developmental” price for steel and an end to monopolistic practices. Apparently this would mean cheaper steel.

Whether these measures are the right route to go or not is debatable, but it begs the question whether the government will attempt to prevent monopolistic practices at its own front door.

Eskom also behaves like a monopoly – it recommends massive power price hikes, generates most of the power, transmits all of it and distributes about half of it.

Absa

At last there is something nice for Absa shareholders. It’s been a tough year for them, what with the fallout from the mortgage exposure. Still, everything is relative and Absa shareholders haven’t had quite as bad a year as Barclays’ shareholders.

Indeed the pricing details provided yesterday by the Barclays and Absa chiefs were so nice that one analyst was tempted to wonder what the catch was. Of course in any deal, no matter how attractive it is packaged, it is always possible to raise potential concerns.

Shareholder activist Theo Botha reckons Barclays has a much more persuasive track record in Africa than Absa, so he asks why Absa’s Africa assets are not being transferred into Barclays.

He sees the deal as a way for Barclays to get more and more of Absa. A few share repurchasing programmes and before you know it, the 62.3 percent is 74.9 percent.

One thing is certain, Absa shareholders will soon be getting much greater exposure to countries outside South Africa, with lots of growth potential. What Absa actually makes of this potential will rely heavily on how it manages technology.

In this regard, Absa’s recent product launches are hugely encouraging. After some fumbling with technology, the group is now very well placed to use new products, such as its Potentiate card with “tap-and-go” facility and a mobile payment acceptance service that works using a cellphone, to ensure that the African potential is realised. By making banking cheaper and easier, the two products are extremely well suited not just for growing a customer base in South Africa but across the continent, where large sections of the population remain unbanked.

Absa certainly looks as though it’s not going to wait for the unbanked to come to them, which is not only good for shareholders, it’s good for economies.

Manufacturing

South Africa’s manufacturing industry, which is regarded by the government as one of the country’s most important pillars of job creation, has been in the doldrums for some time now.

Instead of creating new jobs, the sector has been shedding jobs as it has been buffeted by high input costs, particularly electricity tariffs, labour unrest and policy uncertainty.

Jeff Nemeth, the president and chief executive of the Ford Motor Company of Southern Africa, highlighted one of the problems facing the industry in a presentation to a parliamentary portfolio committee considering changes to broad-based black economic empowerment (BEE).

Nemeth said industrial policy was about having a friendly environment for business to thrive, stressing that jobs were created – including jobs for designated groups – if businesses were growing.

“But if business is shrinking or stagnant, there is no chance. So the first priority is to grow industry and create an environment that is conducive to that growth.

“The second step is to try and control the growth and channel it in directions that meet social imperatives. But if you do the second before you do the first then all you are going to do is hamper growth,” he said.

Nemeth believed it was critical for South Africa to push strongly for free trade alliances with trading blocs in Africa to solidify the country’s position as a gateway into the continent.

The vision and objective of discussions that had been taking place is to have a tripartite African free trade area involving 26 countries in the Southern African Development Community (SADC), Common Market for Eastern and Southern Africa and East African Community (EAC) by 2017.

But Nemeth said Comesa, the EAC and SADC had been talking for 10 years. They had their first meeting in 2008 and the second three years later in 2011, with the next meeting not scheduled until next year. page 5